COVID-19 and Temporary Layoffs: A Short Guide and Some FAQs
Update: On May 29th, the Ontario government passed Ontario Regulation 228/20 - Infectious Disease Emergency Leave, which means that COVID-19 layoffs in Ontario are now leaves of absence. Read Patrizia Piccolo’s blog for more information.
As part of the battle against the COVID-19 pandemic, many businesses have been ordered closed, and those that remain open may be experiencing a severe contraction of demand. Facing dramatic decreases in revenue or outright mandatory closure, many businesses have felt compelled to temporarily lay off their workers. Others may still be waiting to see if additional government relief will be announced before making a decision.
Here, we explore some of the issues with temporary layoffs in the time of COVID-19. We have outlined some of the basics and answered some of the questions most frequently asked by employers. But every day, there are new developments in law and policy that can affect employers’ decisions about layoffs.
This report provides a brief overview of some key issues as of April 1, 2020, but is no substitute for up-to-date, tailored legal advice.
What Is A Temporary Layoff?
A temporary layoff occurs when an employer substantially reduces or stops an employee’s work (and therefore pay), without terminating the employment relationship.
Under the Employment Standards Act, 2000 (“ESA”), an employee is laid off for a week if they are available and able to work, but their work is reduced and they earn less than 50% of their regular wages.[1]
Are Temporary Layoffs Allowed?
Under the ESA, these layoffs are permissible, but at common law, they are not unless the employer has:
Express prior authorization from the employee (usually in the employment contract or a collective agreement); or
Current consent.
Given the current economic and social climate, employees may be willing to provide consent if the existing contract or collective agreement does not already permit a layoff.
What if an Employer Does Not Have Prior Authorization or Consent?
An employer that unilaterally lays off an employee without prior authorization or consent risks being liable for constructive dismissal – i.e. an implied or effective termination of employment.
However, given the extraordinary circumstances, a temporary layoff due to valid COVID-19 government directives or mandatory closure orders may not be considered a termination. If a business is ordered closed by the government, a Court may be willing to find there was implied authorization for layoffs, or that the employment contract was frustrated by the government-ordered closure and that the alternative of a temporary layoff is permissible.
It is harder to predict how Courts will deal with layoffs that are a voluntary response to the financial downturn caused by COVID-19, where no closure is ordered. And we will not know how the courts will interpret these layoffs for months to come.
In short, there is risk to conducting these layoffs without consent or prior authorization, but it may be a risk that the business is willing to accept to reduce costs.
How Long Can a Temporary Layoff Last?
Assuming that a temporary layoff is permissible (either with prior authorization, consent, or in these unprecedented times), the right to layoff is not unfettered. Employers must still comply with the minimum requirements set out in the applicable employment standards legislation.
In Ontario, under the ESA, the duration of the layoff must not exceed certain time limits:
1. Not more than 13 weeks total in any period of 20 consecutive weeks (a “13-week layoff”);
OR
2. More than 13 weeks but less than 35 weeks total in any period of 52 consecutive weeks (a “35-week layoff”), and:
a. the employee continues to receive substantial payments from the employer,
b. the employer continues to make payments for the benefit of the employee under a legitimate retirement or pension plan or a legitimate group or employee insurance plan,
c. the employee receives supplemental unemployment benefits (i.e. top-up of wages),
d. the employee is employed elsewhere during the layoff and would be entitled to receive supplementary unemployment benefits if that were not so,
e. the employer recalls the employee within the time approved by the Director of the Ministry of Labour, or
f. in the case of an employee who is not represented by a trade union, the employer recalls the employee within the time set out in an agreement between the employer and the employee; or
3. In the case of an employee represented by a trade union, a layoff longer than 35 weeks total out of 52 consecutive weeks where the employer recalls the employee within the time set out in an agreement between the employer and the trade union.
When temporary layoffs do not comply with the ESA limits, there is a deemed termination. If this happens, the employee becomes entitled to reasonable notice under the ESA or the common law (whichever applies in the circumstances).
Frequently Asked Questions
1. If I let go of my independent contractors, is that a temporary layoff?
No. Independent contractors are not employees, so the ESA “layoff” provisions don’t apply. Businesses may decide to terminate the contractor’s engagement or temporarily stop requesting services, subject to any terms of any agreements with them.
Independent contractors may be eligible to collect Employment Insurance (EI), if they have paid into it and if they meet the other eligibility requirements. However, businesses should still recognize the need to provide appropriate notice of termination or of a “pause” to its service providers.
2. What payments/benefits do I need to continue during the temporary layoff?
For a 13-week layoff under the ESA, employers are not required to provide any payments/benefits (but this is subject to any terms of your employment agreements and benefits plans). Employers must pay any wages accrued before the layoff begins.
For a 35-week layoff under the ESA, employers are required to provide at least one of the payments/benefits listed above, namely: substantial payments, continued benefits, or supplementary unemployment benefits (unless the employee is working elsewhere or the recall provisions are fulfilled). The Ministry of Labour has not defined what constitutes a “substantial payment”.
Regardless of the length of the layoff or whether there is consent or authorization, we strongly recommend that employers continue benefit coverage for employees. Employers should check with their benefit providers about the implications of a layoff on an employee’s benefit entitlements (e.g. a change in life insurance coverage or LTD entitlements).
3. Can I make my employees take their paid vacation before a layoff starts?
Subject to any terms in the employment contract, existing policies, or consent from the employee, in Ontario employers generally have the right to dictate when employees can take vacation. Section 35 of the ESA requires that employers schedule vacation in one-week, two-week, or three-week blocks (unless the employee requests a shorter period in writing).[2]
4. I laid off my employees without authorization. Can I get consent now or is it too late?
Obtaining late consent can mitigate the risk of having done an unauthorized layoff, but that consent must be obtained in exchange for consideration.
At common law, when an employer alters a term of an employment contract by imposing a temporary layoff without authorization, the employee can:
a. accept the new term expressly or impliedly,
b. reject the term and sue for constructive dismissal, or
c. reject the term and insist upon the original terms.[3]
If the employee accepts the term, employment continues under the altered terms. This may be sufficient to avoid a constructive dismissal claim. That said, the consent should be express and consideration may be required. Courts have held that employees facing constructive dismissal are allowed to take some time to consider their response.[4]
However, a period of apparent acquiescence to the layoff should not be relied on as an implied consent.[5]
Key Takeaways
Temporary layoffs are generally not an easy decision, and it remains to be seen how the common law will adapt to these unprecedented circumstances. Courts won’t have an opportunity to weigh in on these issues for months (or years) to come.
But the economic consequences of COVID-19 are happening now. Many employers are feeling compelled to implement layoffs for the first time in their existence because the financial challenges arising from necessary physical distancing and shutdowns have become too significant. And while new government policies are rolling out almost daily, for some employers, the funds won’t come soon enough.
We understand decisions about temporary layoffs often have to be made quickly, but it’s important to get it right. We strongly recommend that employers who decide to implement temporary layoffs seek legal advice.
For some practical tips, visit our related blog post: “So You’ve Never Implemented a Temporary Layoff: 7 Tips for Employers During COVID-19”.
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[1] Different rules apply to federally regulated employers, which are covered by the Canada Labour Code, or the applicable provincial legislation for employers operating in other provinces.
[2] S.35 of the ESA.
[3] Wronko v. Western Inventory Service Ltd., 2008 ONCA 327 at paras 34-36.
[4] Belton v. Liberty Insurance Co. of Canada, 2004 CarswellOnt 3324 at para 26 (ONCA).
[5] Bevilacqua v. Gracious Living Corp., 2016 ONSC 4127: In this case, the Court held there was a constructive dismissal of an employee who was temporarily laid off without authorization. The employee, Bevilacqua, appeared to acquiesce to the layoff for about 6 weeks, during which he was on company benefits, kept his Blackberry, came in to work for a day and banked it as lieu time, gave the company advice, and looked for temporary (not permanent) work.
